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Wendy's to Acquire Baja Fresh,
Entering 'Fast-Casual' Market

Wendy's International Inc.
said Friday it will acquire closely held Baja Fresh Mexican Grill, which was planning to go public, for $275 million in cash.

"We have been actively pursuing concepts in the rapidly growing, fast-casual restaurant segment and Baja Fresh is clearly the best in the Mexican category," Jack Schuessler, Wendy's chairman and chief executive, said in announcing the deal.

The deal marks the second time the nation's third-largest hamburger chain has branched out to acquire a company that sells food beyond its typical menu. Wendy's owns the Tim Hortons Canadian doughnut and coffee shop chain. The purchase also would pit it directly against hamburger rival
McDonald's Corp.
, which owns the Chipotle Mexican Grill chain.

"Baja has proven itself for national growth potential," Mr. Schuessler said in a written statement, noting that the California-based chain has posted 29 consecutive quarters of sales gains for units open at least a year.

Baja, which Mr. Schuessler characterized as catering to "adults who care about eating well," had systemwide sales last year of $177 million and has 169 owned or franchised restaurants in 16 states and the District of Columbia.

Wendy's agreed late Thursday to acquire Baja's parent, Fresh Enterprises Inc., which recently filed preparatory documents with the Securities and Exchange Commission for an initial public offering.

Wendy's management has said the company's future is in acquisitions of other concepts and joint ventures, and that the expansion wouldn't compete directly with Wendy's Old Fashioned Hamburgers. The company also recently acquired a 45% stake in Cafe Express, a small sandwich chain.

Wendy's said the acquisition, which is expected to close in June, is likely to decrease earnings by two cents to four a share this year and in 2003, but could boost earnings by a like amount beginning in 2004 and could add as much as 13 cents to 15 cents a share by 2007.

Nonetheless, Wendy's reiterated its estimate of 2002 earnings of $1.85 to $1.90 a share, including Baja. "We are confident that we can meet our growth objectives in 2002 due to stronger than expected sales at Wendy's and Tim Hortons, improvement in the Canadian foreign exchange rate, and lower costs for beef at Wendy's," Wendy's Chief Financial Officer Kerrii Anderson said in a prepared statement.

Ms. Anderson said Wendy's would use between $50 million to $100 million of its cash and issue between $175 million to $225 million in long-term debt to finance the deal. The company's long-term debt ratio would go to 50% from 41%, she said.

Asked in a conference call about forgoing an IPO, Baja Chief Executive Greg Dollarhyde said Wendy's provided "capital far more vast than what we could lay our hands on" independently. As to how Baja stacks up against other Mexican-food chains, he said, "We're not a beanie, cheesie, big platter of food. ...We're much fresher, cleaner flavors. You're full but not fat full."